The Indian rupee backed off a five-month high of 45.20 per dollar on Wednesday and ended down as traders were forced to buy dollars back following heavy dollar purchases by state-run banks and importers.
Talk the central bank made phone enquiries in the market on prices also spurred traders to unwind short dollar positions on nervousness the authorities were concerned with rupee strength.
The partially-convertible rupee ended at 45.3650/3750, 0.2 percent lower than Tuesday's close of 45.2750/2850. "(Past) 45.25 levels, the central bank may be intolerant of further rupee gains as they may hurt export competitiveness. At a time when the current account deficit is widening, it can ill-afford to hurt export growth," said N.S. Paramsivam, head of forex and treasury at Essar group.
If it intervenes, the Reserve Bank of India usually does so via state-run banks to curb market volatility and prevent the rupee from straying too far from what it considers a fair value. India's current account deficit widened to its highest level since the economy was opened in 1991 in the fiscal year 2005/06. It doubled to $10.61 billion from $5.4 billion a year earlier.
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